Binghamton Trust Co. v. Auten

• Citation: 57 S.W. 1105
• Parties: BINGHAMTON TRUST CO. v. AUTEN.
• Decision Date: 16 June 1900
• Court: Supreme Court of Arkansas

57 S.W. 1105

BINGHAMTON TRUST CO. v. AUTEN.

Supreme Court of Arkansas.

June 16, 1900.

Appeal from circuit court, Pulaski county, Second division; Joseph W. Martin, Judge.

Action by the Binghamton Trust Company against one Auten, as receiver of the First National Bank of Little Rock. From a judgment in favor of defendant, plaintiff appeals. Reversed.

The McCarthy-Joyce Company, an Arkansas corporation, was on the 7th of December, 1892, indebted to the First National Bank of Little Rock in the sum of $30,000; its account with the bank being overdrawn to that amount. For the purpose of raising money to pay off a portion of this debt, the company on that day executed to James Joyce two notes, for $5,000 each, one due in four and the other in five months. We copy one of them: "$5,000.00. Little Rock, Ark., Dec. 7, 1892. Four months after date we, or either of us, promise to pay to the order of James Joyce five thousand dollars, for value received, negotiable and payable, without defalcation or discount, at the First National Bank of Little Rock, Arks., with interest from maturity at the rate of 10 per cent. per annum until paid. McCarthy-Joyce Company, Geo. Mandlebaum, Secretary & Treasurer." The notes were indorsed by James Joyce, the payee, in blank, and were delivered by the company to H. G. Allis, president of the bank, to be negotiated by him; the proceeds thereof to be applied on the debt of the company to the bank. Allis indorsed the notes, and then transmitted them to the Binghamton Trust Company, of Binghamton, N. Y., in the following letter: "Capital and Surplus, $600,000. H. G. Allis, President. W. C. Denny, Cashier. First National Bank of Little Rock, Arks. December 10, 1892. Binghamton Trust Company — Gentlemen: I inclose you two notes of the McCarthy-Joyce Company, one at four months, the other at five months, from the 7th inst., for $5,000 each. This company now has on hand 1,500 bales of cotton, worth in the neighborhood of $70,000. It is probable they will have to hold this cotton for sixty or ninety days. I indorse the paper myself, in order that it may be subjected to any collateral of mine in your hands. The paper is absolutely good, as we hold insurance and warehouse receipts on all this cotton. If you can handle it, kindly remit the amount of the notes to the United States National Bank of New York for our credit, and advise me proceeds by wire; otherwise, return. Yours, very truly, H. G. Allis, President." The statements in the letter were false. The McCarthy-Joyce Company was insolvent. It did not have on hand the cotton mentioned, nor did Allis or the bank have warehouse receipts for the cotton. The trust company, being misled by these false statements, accepted the note, and remitted in payment for the same $9,710 to the United States Bank of New York, which was placed to the credit of the First National Bank, and by that bank credited on the account of the McCarthy-Joyce Company. One of the notes was taken by the trust company for itself, and the other for the Deposit Bank of New York. The trust company afterwards brought this action against the First National Bank to recover damages for deceit on account of the false statements of its president, Allis. The circuit court found in favor of the defendant, and the trust company appealed.

Blackwood & Williams, for appellant. Hill & Auten, for appellee.

RIDDICK, J. (after stating the facts).

This is an action by the Binghamton Trust Company against the First National Bank of Little Rock to recover damages for deceit. The company does not ask for a rescission of its contract with the president of the bank by which it became the owner of the note of the McCarthy-Joyce Company. It asks for damages for deceit and fraud practiced upon it by which it was induced to pay out a large sum of money for the worthless note of an insolvent company. A party who is induced to purchase property by deceit and fraud has an election of remedies. He may rescind the contract, and to do this he must return or offer to return what he has received under it. On the other hand, he may affirm the contract, and sue for damages occasioned by the deceit and fraud; and in that event he is not required to return or offer to return what he has received under the contract. These rules are well settled, and the contention of the bank that plaintiff should have returned or offered to return the notes must be overruled. Goodwin v. Robinson, 30 Ark. 535; Matlock v. Reppy, 47 Ark. 148, 14 S. W. 546; 14 Am. & Eng. Enc. Law (2d Ed.) 168, and cases cited.

The next contention is that Allis was not acting for the bank, but for the McCarthy-Joyce Company, and that he had no authority to bind the bank by his false representations. Allis was president of the bank, to which the McCarthy-Joyce Company was indebted in a large amount. This company was financially embarrassed, and in fact insolvent. As president...